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Massive Ontario pension scheme at decision point: Cohn

The outcome of behind-the-scenes debate could breathe new life into retirement incomes. Or trigger political death and early retirement for Premier Kathleen Wynne.

Behind closed doors, Ontario Premier Kathleen Wynne is discussing a variety of schemes for a new Ontario pension plan. The outcome of the high-stakes internal debate could breathe new life into Ontarians' retirement incomes, or trigger political death and the premier's early retirement, Martin Regg Cohn writes. (Mark Blinch / THE CANADIAN PRESS file photo)

The broad outlines of a new Ontario pension plan are taking shape. And it could be a very unconventional pension.

Behind the scenes, the Liberal government has launched a high-stakes internal debate on how to create a massive new retirement savings program.

The outcome could breathe new life into retirement incomes. Or trigger political death and early retirement for Kathleen Wynne.

The premier’s final pension decision will trigger a major public debate in the provincial election coming as early as spring. And sources say the closed- door discussions now underway could take an unexpected turn:

Some options bear little resemblance to the enhanced Canada Pension Plan that Ontario has long touted as the best fit.

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Ontario and other provinces were rebuffed by the federal Conservatives last month in their collective drive to boost the time-tested CPP. Now, Queen’s Park is looking at alternatives that could mark a stark departure from its past stance.

Government sources describe options that could deviate widely from the venerable CPP model of a “defined benefit,” with predictable payouts that are guaranteed. Instead, at least four proposals now under consideration would allow a worker to “opt out,” making them mandatory in name only. Such plans would offer no guarantee of how much people could expect for their retirement income, leaving them exposed to changing market conditions and possibly higher management fees.

The debate pits pension certainty against political calculations. The plan must be actuarially sound but politically saleable.

Wynne is musing, publicly and privately, about an “opt-out clause so people actually will have a choice.” But individual choice comes at an economic price: If pension plans are made voluntary, they risk attrition over time. Uncertainty over withdrawals inhibits pension fund managers from taking the long view to maximize investment returns.

Now, Wynne is trying to design a long-term pension plan within a remarkably short planning horizon to meet her own self-imposed political deadline. After sitting through four years of grindingly slow negotiations with Ottawa and the provinces over CPP reforms, Queen’s Park suddenly wants to unveil its own plan from scratch within a matter of weeks — in time for a spring budget, ahead of any election season.

In recent days, Wynne has briskly assembled a high-powered panel of pension experts to make recommendations, and invited former prime minister Paul Martin to serve as her special adviser. Sources say they are working from a menu of options put together by the finance ministry and the premier’s office, some of which suggest the government is far less committed to the CPP model than previously indicated in public.

Based on cabinet documents and option papers circulating in the government, the main choices are:

A conventional pension mirroring the design of the CPP, with mandatory contributions from all employers and employees. But the government describes this as a “target” benefit plan that would give it wiggle room to reduce payouts if market performance falters, rather than raising premiums for younger workers to make up the difference.

A so-called “defined contribution” plan that makes no promises or targets for future payouts. The government is modelling this on the NEST plan recently rolled out in Britain that requires employers to set up their own private workplace savings plan or automatically enrol employees in (administratively costly) NEST accounts, from which they could later opt out.

Even weaker options would allow employers to determine their own contributions for plans run entirely by private companies, which would inevitably charge far higher fees. Both employers and workers could opt out.

Other loose options would let companies offer their own plan or something based on a “federal mechanism” — a euphemism for controversial PRPPs favoured by Ottawa. These Pooled Registered Pension Plans were resisted by the Ontario Liberals until last year because they tend to have higher fees and erratic enrolment due to opt-outs.

The government is also flirting with a pension exemption for small businesses, low-income workers and those with existing workplace pensions.

Wynne faces a political and pension trap of her own making if she strays too far from Ontario’s past position. After campaigning for years in favour of an enhanced CPP, far better to mirror it with an Ontario Pension Plan that merely tweaks a tried-and-true model.

Any big deviation from reliable, defined (even targeted) benefits and mandatory enrolment would dilute the large investment pools that make other public sector funds so successful. By abandoning a CPP model, Wynne would also be foreclosing the future option of a pan-Canadian pension plan.

Ontario needs to take the long view, allowing for a new government in Ottawa to one day make common cause with the provinces. It would still take several years (and a couple of election cycles) for Ontario to phase in any CPP-style OPP — time enough for any new federal government to join in.

Ontario has invested years in achieving a pan-Canadian consensus on an enhanced CPP. Why suddenly abandon that achievement when Ontario could stick to its principles by building on our collective public pension track record of success?

Rather than offering opt-outs for a half-baked plan, far better to design an enduring Ontario model that Ottawa and other provinces can one day opt in to.

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